Promissory Notes

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EQUIPMENT PROMISSORY NOTE
$1,000,000.00 Dated as of September 17, 2004
Scottsdale Arizona
KONA GRILL DENVER, INC., a Delaware corporation ("Borrower"), for value
received, hereby promises to pay to GE CAPITAL FRANCHISE FINANCE Corporation, a
Delaware corporation ("GE"), whose address is 17207 North Perimeter Drive,
Scottsdale, Arizona 85255, or order, on or before October 1, 2011 (the "Maturity
Date"), as herein provided, the principal sum of $1,000,000.00, and to pay
interest on the unpaid principal amount of this Note from the date hereof to the
Maturity Date at the rate of 7.87% per annum on the basis of a 360-day year
consisting of twelve consecutive 30-day months, such principal and interest to
be paid in immediately available funds and in lawful money of the United States.
Initially capitalized terms which are not otherwise defined in this Note shall
have the meanings set forth in that certain Loan and Security Agreement dated as
of September 17, 2004, between Borrower and GE, as such agreement may be
amended, restated and/or supplemented from time to time (the "Loan Agreement").
Interest on the principal amount of this Note for the period commencing with the
date such principal amount is advanced by GE through the last day in the month
in which this Note is dated shall be due and payable upon delivery of this Note.
Thereafter, principal and interest shall be payable in consecutive monthly
installments of $15,521.53 commencing on November 1, 2004, and continuing on the
first day of each month thereafter until the Maturity Date, at which time the
outstanding principal and unpaid accrued interest shall be due and payable.
Borrower may prepay this Note in full, but not in part (except as
otherwise set forth below), including all accrued but unpaid interest hereunder
and all sums advanced by GE pursuant to the Loan Documents and any Other
Agreements, provided that (i) no Event of Default has occurred under any of the
Loan Documents or any Other Agreements, (ii) except as otherwise set forth
herein, any such prepayment shall only be made on a regularly scheduled payment
date upon not less than 30 days prior written notice from Borrower to GE, and
(iii) any such prepayment shall be made together with payment of an amount equal
to the sum of:
(a) a prepayment fee determined by: (i) calculating the decrease
(expressed in basis points) in the then-current weekly average yield of
five-year U.S. Dollar Swaps (as published in Federal Reserve Statistical
Release H.15[519]) (the "Index") on the Friday immediately preceding the
week in which the prepayment is made from the date hereof, and dividing
such decrease by 100; (ii) multiplying the result determined in (i) by the
prepayment factor shown below corresponding to the applicable Loan Year as
indicated below during which such prepayment is made, and (iii)
multiplying such product by the principal balance to be prepaid. If the
Index is unchanged or has increased since the date hereof, no prepayment
fee shall be due.
Loan Year Prepayment Factor
--------- -----------------
1 .033
2 .029
3 .024
4 .019
5 .014
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6 .010
7 .005
The first Loan Year shall mean the period of time commencing on the date
of this Note and ending on the last day of the twelfth consecutive month
commencing with the month after the month in which this Note is dated, unless
this Note is dated the first day of a month, in which case the first Loan Year
shall mean the twelve consecutive calendar months commencing with the date of
this Note. Each subsequent Loan Year shall mean the successive twelve
consecutive month period following the preceding Loan Year. If the Index is
unchanged or has increased since the date of this Note, no prepayment fee shall
be due.
Plus:
(b) a prepayment premium equal to:
(i) 4% of the amount prepaid if the prepayment is made on or
following the date of this Note but prior to the first anniversary
of the date of this Note;
(ii) 3% of the amount prepaid if the prepayment is made on or
following the first anniversary of the date of this Note but prior
to the second anniversary of the date of this Note;
(iii) 2% of the amount prepaid if the prepayment is made on or
following the second anniversary of the date of this Note but prior
to the third anniversary of the date of this Note; and
(iv) 1% of the amount prepaid if the prepayment is made on or
following the third anniversary of the date of this Note but prior
to the fourth anniversary of the date of this Note.
The foregoing prepayment fee and prepayment premium, as applicable, shall
be due and payable regardless of whether such prepayment is the result of a
voluntary prepayment by Borrower or as a result of GE declaring the unpaid
principal balance of this Note, accrued interest and all other sums due under
this Note, the other Loan Documents and any Other Agreements, due and payable as
contemplated below.
Upon execution of this Note, Borrower shall authorize GE to establish
arrangements whereby all payments of principal and interest hereunder are
transferred by Automated Clearing House Debit initiated by GE directly from an
account at a U.S. bank in the name of Borrower to such account as GE may
designate or as GE may otherwise designate. Each payment of principal and
interest hereunder shall be applied first toward any past due payments under
this Note (including payment of all Costs (as herein defined)), then to accrued
interest, and the balance, after the payment of such accrued interest, if any,
shall be applied to the unpaid principal balance of this Note; provided,
however, each payment hereunder after an Event of Default has occurred shall be
applied as GE in its sole discretion may determine.
This Note is secured by the Loan Agreement and the other Loan Documents.
Upon the occurrence of an Event of Default, GE may declare the entire unpaid
principal balance of this Note, accrued interest, if any, and all other sums due
under this Note and any Loan Documents or Other Agreements due and payable at
once without notice to Borrower. All past-due principal and/or interest shall
bear interest from the due date to the date of actual payment at a rate (the
"Default Rate") equal to at the lesser of (i) the highest rate for which the
undersigned may legally contract or (ii) the rate of 14% per annum, and such
Default Rate shall continue to apply following a judgment in favor of GE under
this
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Note. If Borrower fails to make any payment or installment due under this Note
within five days of its due date, Borrower shall pay to GE, in addition to any
other sum due GE under this Note or any other Loan Document, a late charge equal
to 5% of such past-due payment or installment (the "Late Charge"), which Late
Charge is a reasonable estimate of the loss that may be sustained by GE due to
the failure of Borrower to make timely payments. All payments of principal and
interest due hereunder shall be made (i) without deduction of any present and
future taxes, levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Borrower, and (ii) without any other right of
abatement, reduction, setoff, defense, counterclaim, interruption, deferment or
recoupment for any reason whatsoever. Borrower will pay the amounts necessary
such that the gross amount of the principal and interest received by GE is not
less than that required by this Note.
No delay or omission on the part of GE in exercising any remedy, right or
option under this Note shall operate as a waiver of such remedy, right or
option. In any event, a waiver on any one occasion shall not be construed as a
waiver or bar to any such remedy, right or option on a future occasion. Borrower
hereby waives presentment, demand for payment, notice of dishonor, notice of
protest, and protest, notice of intent to accelerate, notice of acceleration and
all other notices or demands in connection with delivery, acceptance,
performance, default or endorsement of this Note. All notices, consents,
approvals or other instruments required or permitted to be given by either party
pursuant to this Note shall be given in accordance with the notice provisions in
the Loan Agreement. Should any indebtedness represented by this Note be
collected at law or in equity, or in bankruptcy or other proceedings, or should
this Note be placed in the hands of attorneys for collection after default,
Borrower shall pay, in addition to the principal and interest due and payable
hereon, all costs of collecting or attempting to collect this Note (the
"Costs"), including reasonable attorneys' fees and expenses of GE (including
those fees and expenses incurred in connection with any appeal) and court costs
whether or not a judicial action is commenced by GE. This Note may not be
amended or modified except by a written agreement duly executed by the party
against whom enforcement of this Note is sought. In the event that any one or
more of the provisions contained in this Note shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Note, and this
Note shall be construed as if such provision had never been contained herein or
therein. Time is of the essence in the performance of each and every obligation
under this Note.
Notwithstanding anything to the contrary contained in any of the Loan
Documents, the obligations of Borrower to GE under this Note and any other Loan
Documents are subject to the limitation that payments of interest and late
charges to GE shall not be required to the extent that receipt of any such
payment by GE would be contrary to provisions of applicable law limiting the
maximum rate of interest that may be charged or collected by GE. The portion of
any such payment received by GE that is in excess of the maximum interest
permitted by such provisions of law shall be credited to the principal balance
of this Note or if such excess portion exceeds the outstanding principal balance
of this Note, then such excess portion shall be refunded to Borrower. All
interest paid or agreed to be paid to GE shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and/or spread throughout the
full term of this Note (including, without limitation, the period of any renewal
or extension thereof) so that interest for such full term shall not exceed the
maximum amount permitted by applicable law.
This obligation shall bind Borrower and its successors and assigns, and
the benefits hereof shall inure to GE and its successors and assigns.
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IN WITNESS WHEREOF, Borrower has executed and delivered this Note
effective as of the date first set forth above.
BORROWER:
KONA GRILL DENVER, INC.,
a Delaware corporation
By /s/ James Spiel
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Printed Name: James Spiel
Its: Secretary